Enforceability of Intra-EU Arbitration Awards in the USA

By Ignacio Zabala Alonso, William & Mary Law School LLM ’21 (see full bio at the end of the article).

The Court of Justice of the European Union (CJEU) has set the invalidity of intra-EU arbitration agreements, and the possibility of enforcing those intra-EU awards in the European Union. However, the enforceability of intra-EU awards outside the EU – for example, in the United States – is not clear.

In order to understand the CJEU’s logic used to invalidate the intra-EU arbitration awards, we need to learn about the CJEU’s relevant decisions in this matter.

The first CJEU decision about this matter was the famous Slovak Republic v. Achmea B.V., where the CJEU held that the arbitration investor-state dispute settlement (ISDS) mechanism of a Bilateral Investment Treaty (BIT), between the Netherlands and the Slovak Republic, was incompatible with the autonomy of EU law.[1]

The CJEU supported that conclusion with three arguments. First, arbitration tribunals are subject to interpreting or applying EU law.[2] Second, arbitration tribunals “could not be regarded as a ‘court or tribunal’ within the meaning of Article 267 TFEU,” and, therefore, they remove the interpretation and application of EU law from the EU legal framework.[3] Third, the award’s review system is very limited, and thus so is the access to a judicial system within EU law requirements.[4] Based on the previous three arguments, the CJEU concluded that the ISDS set in the 1991 BIT was incompatible with EU law.[5]

Achmea means that most awards ruled on by an arbitration tribunal formed per an intra-EU BIT are practically unenforceable before Member States’ courts.[6] However, Achmea does not reach those intra-EU arbitration agreements set pursuant to other instruments rather than BITs.

The next relevant case regarding the incompatibility of intra-EU investment arbitration is Republic of Moldova v. Komstroy.[7] By this judgement, the CJEU expanded the Achmea reasoning to the ISDS dispute settlement mechanism provided by the Energy Charter Treaty (ECT). Thus, Article 26(2)(c) of the ECT, which provided an intra-EU arbitration proceeding, is contrary to EU Law. This was a surprising case as the parties to the dispute were neither EU Members nor EU investors.[8]

In Komstroy, the CJEU applied the Achmea test to Article 26(2)(c).[9] The application of the Achmea doctrine went as follows: (i) the arbitration tribunals under ECT Article 26(2)(c) are required to interpret and/or apply EU Law, (ii) those same arbitration tribunals are not considered part of a Member State’s courts, and (iii) the awards rendered by such arbitration tribunals are not subject to review by a court of a Member State.[10]

That is how the CJEU extended the Achmea doctrine to the intra-EU arbitration proceedings under the ETC, setting an EU constitutional framework[11] regarding the intra-EU investments.

The last hope for those who expected some intra-EU arbitration was buried by Poland v. PL Holdings.[12]

The CJEU concluded that ad hoc arbitration agreements are identical to intra-EU BIT arbitration clauses.[13] The judgement was supported by the Achmea case and by the Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union (OJ 2020 L 169, p. 1) (ATBIT).[14] The ATBIT is an agreement of twenty-three Member States whereby the Contracting Parties represent that the “Arbitration Clauses [between an investor and a State in a Bilateral Investment Treaty] are contrary to the EU Treaties and thus inapplicable.”[15] The ATBIT aims to avoid the application of such arbitration clauses.

Using Achmea’s test and the ATBIT, the CJEU noted the risk of circumvention, meaning the possibility for a Member State to avoid the application of EU Law, if the CJEU validated the ad hoc arbitration agreements.[16] The Court also refused to set a temporal limitation for the application of the effects of the judgement because in Achmea there was no such temporal limitation. The judgement was not extended to all arbitration agreements concluded by the Member States, “only to ad hoc arbitration agreements concluded in circumstances such as those at issue in the main proceedings.”[17] However, in this same case, the CJEU seemed to expand a bit the possible effects.[18] Therefore, it seems that the exact effects of PL Holdings are yet to be determined.

In the United States, the enforceability of intra-EU awards remains an unclear territory. Not many U.S. District Courts are rendering decisions in this regard. However, some opinions can give us some hints.

In the Micula v. Gov’t of Rom., the U.S. Court of Appeals for the District of Columbia confirmed the decision of the D.C. District Court regarding recognizing and enforcing an International Centre for Settlement of Investment Disputes (ICSID) award obtained by an EU investor (the Micula brothers) against Romania.[19]

Everything commenced when Viorel Micula and Ioan Micula (“Micula”), of Swedish nationality but Romanian origins, conducted certain activities in Romania’s territory because of various incentives to promote such investments.[20] A BIT protected Micula’s investments made in 2002 between Romania and Sweden (“2002 BIT”).[21] However, Romania removed the incentives in 2004 because the European Commission considered the incentives to be “state aid” and an impediment to Romania’s becoming a member of the EU.[22]

Micula commenced arbitration proceedings before an ICSID tribunal under the pertinent clause of the 2002 BIT on August 2, 2005.[23] In December 2013, the tribunal awarded damages to Micula plus interest.[24] Romania joined the EU on January 1, 2007, once the arbitration proceeding had begun but before the tribunal’s ruling.[25] Later, Romania tried to annul the award before the ICSID.[26] The ICSID did not stay the enforcement of the award as Romania did not provide the commitment to pay if the ICSID decided not to annul the award.[27] Finally, on February 26, 2016, the ICSID decided not to annul the award, rejecting the argument that the award was incompatible with EU Law.[28]

In the meantime, the European Commission considered the award as state aid and incompatible with EU Law, ordering Romania not to pay and to recover a partial payment already made.[29] Micula appealed this decision before the General Court of the European Court of Justice.[30] In June 2019, the General Court of the European Court of Justice overruled the European Commission’s decision on the grounds that the Achmea case was inapplicable, as the tribunal was not bound to use EU Law.[31] After the European Commission appealed this decision, the CJEU overturned it in January 2022.[32] The CJEU understood that the award’s date was the reference point to decide whether the Achmea case was applicable, not Romania’s date of breach.[33]

However, the District Court for the District of Columbia’s decision was rendered before the CJEU overturned the General Court’s ruling.[34] This may be the reason why the District Court for the District of Columbia also found that Achmea did not apply. The reasons the District Court gave are the following: (i) the events occurred before Romania became a Member State, (ii) the tribunal did not apply or interpret EU law, and (iii) the General Court of the European Court of Justice overruled the European Commission’s decision in regard to the consideration of the award as state aid.[35]

This case leaves open the door to speculation, as it is not clear if the US courts will examine the arbitration agreement or if they will enforce intra-EU investor-state awards under the doctrine put forth in Mobil Cerro Negro, Ltd. v. Bolivarian Republic of Venez.[36] Nevertheless, Micula is an exception among other decisions rendered by US courts, as usually the courts decide to stay the proceeding.[37]

Particularly, concerning the US jurisdiction, some authors noticed that there is a more direct and simple way to enforce ICSID awards in the US than the rationale followed by the District Court in Micula.[38]

Article 54(1) of the Settlement of Investment Disputes between States and Nationals of Other States (the “Convention”) sets that the “contracting state[s] shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State.”[39]

Therefore, we have to apply US law to determine the circumstances in which an ICSID award can be recognized and enforced within the US territory. 22 U.S.C.A. 1650(a) contains the implementation of the enforceability of the awards ruled under the Convention.[40] It says that “[t]he pecuniary obligations imposed by such an award shall be enforced and shall be given the same full faith and credit as if the award were a final judgement of a court of general jurisdiction of one of the several States.”[41] Thus, the court’s role is very limited.

This leads us to the Cerro Negro case. This judgement states that the US courts “may do no more than examine the judgement’s authenticity and enforce the obligations imposed by the award.”[42] One may be tempted to distinguish between the award’s subject matter and the ICSID jurisdiction. We shall avoid that, however, because US law clearly states that “[a] federal court is ‘not permitted to examine an ICSID award’s merits, its compliance with international law, or the ICSID tribunal’s jurisdiction to render the award.’”[43] Interestingly, despite the District Court in the Micula case stating this rule, it decided not to apply it.[44]

On the other hand, the enforcement of awards rendered by arbitration agreements under the ECT is subject to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”).[45] As a result, the rule to determine the validity of those awards differs from the ICSID awards[46].

The merits examination of the US courts is now stated by Article V1(a) of the New York Convention. This article allows the courts to refuse the enforcement of an award when the “agreement is not valid under the law to which the parties have subjected it.”[47] In the Komstroy case, the CJEU extend the Achmea doctrine to ECT awards, invalidating those agreements.[48] However, the said article of the New York Convention does not seem to be mandatory, so uncertainty remains in this regard.

At this point, we can conclude that the enforcement by the US of awards originating from intra-EU awards is an unclear landscape.

Regarding ICSID awards, Micula is the only case at this time, and it does not give us a clear answer. First, it is unclear if the US courts will follow the Mobil Cerro Negro rule and avoid examining the tribunal’s jurisdiction. Second, it remains unclear if ICSID intra-EU awards have special treatment, enabling the US courts the jurisdiction exam. Third, the enforcement of intra-EU ECT awards, although not affected by Micula, is also a topic that has no clear answer, as US courts have an option to decide whether the CJEU’s judgments affect the validity of the tribunal’s jurisdiction. Finally, after PL Holdings, it is also unclear if the CJEU will continue to terminate other arbitration agreements between EU Members, or if it only affects the investment field.

As a final note, the enforcement of an ICSID award without examination of the tribunal’s jurisdiction was the method chosen by the Supreme Court of the United Kingdom when deciding to lift the stay and proceed with the enforcement in the UK of the same award as the Micula case, while seeking the enforcement of the award before the UK courts.[49]

The UK Supreme Court decided that the obligations under the Convention are more important than the EU duty of sincere cooperation.[50] Despite the conclusion of the pending appeal being “sufficient to trigger the duty of cooperation,” and that the UK courts can stay the enforcement of an ICSID award under “limited circumstances,” the UK Supreme Court decided that the duty of sincere cooperation is not applicable.[51] The UK Supreme Court held that the obligations stipulated in the New York Convention are not governed under EU law within the framework of TFEU Article 351.[52] This is because the UK joined the New York Convention before acceding to the EU.[53] Therefore, the UK Supreme Court avoided the application of EU law, considering the award enforceable under the New York Convention.

This decision suggests the possibility that the Micula case reinforces the opinion that the US courts should avoid examining the tribunal’s jurisdiction in intra-EU ICSID disputes, in line with the rule stated in Mobil Cerro Negro. This will allow the enforceability of some awards in the US. Nevertheless, as things stand now, this is far from certain.

About the Author

Ignacio is from Madrid, Spain, where he works at a Spanish firm ECIJA LEGAL. He came as an LLM exchange student to William and Mary Law School, from IE Law School.
Ignacio is a dual-qualified lawyer in the English and Welsh jurisdiction and the Spanish one. His interest in international law comes from the hand of international arbitration and comparative law as tools that help the coexistence of diverse understandings of law in an increasingly internationalized world.

[1] See generally C-284/16, Slovak Republic v. Achmea B.V., ECLI:EU:C:2018:158 (Mar. 6, 2018).

[2] Id. at 39.

[3] Id. at 19.

[4] Id. at 55.

[5] Id. at ¶ 60.

[6] Laurens Ankersmit, Achmea: The Beginning of the End for ISDS in and with Europe, Inv. Treaty News (Apr. 24, 2018), https://www.iisd.org/itn/en/2018/04/24/achmea-the-beginning-of-the-end-for-isds-in-and-with-europe-laurens-ankersmit/.

[7] C-741/19, Republic of Moldova v. Komstroy, ECLI:EU:C:2021:655 (Sept. 2, 2021).

[8] Clement Fouchard & Vanessa Thieffry, CJEU Ruling in Moldova v. Komstroy: the End of Intra-EU Investment Arbitration Under the Energy Charter Treaty (and a Restrictive Interpretation of the Notion of Protected Investment), Kluwer Arb. Blog (Sept. 7, 2021), http://arbitrationblog.kluwerarbitration.com/2021/09/07/cjeu-ruling-in-moldova-v-komstroy-the-end-of-intra-eu-investment-arbitration-under-the-energy-charter-treaty-and-a-restrictive-interpretation-of-the-notion-of-protected-investment/.

[9] C-741/19, Republic of Moldova v. Komstroy, ECLI:EU:C:2021:655 (Sept. 2, 2021).

[10] Id.

[11] Id. at ¶ 44.

[12] C-109/20, Poland v. PL Holdings, ECLI:EU:C:2021:875 (Oct. 26, 2021).

[13] Id. at ¶ 65.

[14] See generally id.

[15] C-109/20, Poland v. PL Holdings, ECLI:EU:C:2021:875, ¶ 4 (Oct. 26, 2021) (quoting Agreement for the Termination of Bilateral Investment Treaties between the Member States of the European Union, O.J., May 29, 2020, L 169, p. 1).

[16] Id. at ¶ 65.

[17] Id. at ¶ 67.

[18] Id. at ¶ 49. (“The legal approach envisaged by PL Holdings could be adopted in a multitude of disputes which may concern the application and interpretation of EU law, thus allowing the autonomy of that law to be undermined repeatedly.”).

[19] Micula v. Gov’t of Rom., 404 F. Supp. 3d 265 (D.D.C. 2019), aff’d, 805 F. App’x 1 (D.C. Cir. 2020).

[20] Id. at 270.

[21] Id. at 270.

[22] Id. at 271.

[23] Id. at 270.

[24] Id. at 270-71.

[25] Id. at 271.

[26] Id.

[27] Id.

[28] Id.

[29] Id.

[30] Id.

[31] Id. at 274.

[32] Court of Justice of the European Union Press Release No 15/22, The General Court erred in law in finding that the Commission lacked competence to examine, in the light of the law on State aid, the compensation paid to Swedish investors by Romania in implementation of an arbitral award (Jan. 25, 2022).

[33] Id.

[34] See generally Micula, 404 F. Supp. 3d.

[35] Id.

[36] Mobil Cerro Negro, Ltd. v. Bolivarian Republic of Venez., 863 F.3d 96 (2d Cir. 2017).

[37] Id.

[38] See, e.g., George A. Bermann, Understanding ICSID Article 54, 35 ICSID Rev. – Foreign Inv. L.J., 311 (Nov. 9, 2020); Sophie Davin, Enforcement of ICSID Awards in the United States: Should the ICSID Convention be Read as Allowing a ‘Second Bite at the Apple’?, 48 N.Y.U. J. Int’l L. & Pol. 1255, 1257 (2016).

[39] Convention on the Settlement of Investment Disputes Between States and Nationals of Other States art. 54(1), Oct. 14, 1966, https://icsid.worldbank.org/sites/default/files/ICSID%20Convention%20English.pdf.

[40] 22 U.S.C.A. § 1650a (1966).

[41] Id.

[42] Mobil Cerro Negro, Ltd., 863 F.3d at 102.

[43] Micula, 404 F. Supp. at 275.(quoting Mobil Cerro Negro, 863 F.3d at 102, 118).

[44] Alexander A. Yanos & Carlos Ramos-Mrosovsky, Carlos, Intra-EU Investment Treaty Disputes in US Courts: Achmea, Micula and Beyond, Glob. Arb. Rev. (Oct. 13, 2020), https://globalarbitrationreview.com/review/the-arbitration-review-of-the-americas/2021/article/intra-eu-investment-treaty-disputes-in-us-courts-achmea-micula-and-beyond

[45] Id.

[46] Id.

[47] Id.

[48] Fouchard & Thieffry, supra note 8.

[49] UK Supreme Court Paves the Way for Enforcement of an ICSID Award in the Long-Running Micula v. Romania Dispute, Gibson, Dunn & Crutcher LLP (Feb. 21, 2020), https://www.gibsondunn.com/wp-content/uploads/2020/02/uk-supreme-court-paves-the-way-for-enforcement-of-an-icsid-award-in-the-long-running-micula-v-romania-dispute.pdf.

[50] Id.

[51] UK Supreme Court Lifts Stay of Enforcement of ICSID Award, Allen & Gledhill LLP (Mar. 30, 2020), https://www.allenandgledhill.com/sg/publication/articles/14501/uk-supreme-court-lifts-stay-of-enforcement-of-icsid-award.

[52] Id.

[53] Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, supra note 39.

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